Idle regulation may impact gas prices
Sunday, March 04, 2012

WASHINGTON -- Curse the pumps if you will, but Washington could be at least partly to blame for rising gas prices.

It's been nearly two years since Congress directed the Commodity Futures Trading Commission to cap the amount of trading positions that commodities speculators can hold, but the agency hasn't done it yet.

Democrats like Sen. Bob Casey of Pennsylvania and Rep. Barney Frank of Massachusetts believe position limits would stabilize gas prices by preventing a small number of investors from controlling the market and driving up prices at the pump.

A commission rule that narrowly passed last October prevents any entity from owning more than 10.5 percent of exchange-traded U.S. oil contracts, yet the agency hasn't been able to implement the rule because of disagreements over how it would apply to the previously unregulated swaps market.

But even if bureaucrats agree on the kinds of investors that should be subject to the rule, regulatory efforts could be stymied by lack of funding for enforcement or -- more definitively -- by court action sought by Wall Street investors who say the rule is unnecessary.

The Commodity Futures Trading Commission failed to do a cost-benefit analysis, said Ira Hammerman, chief counsel to the Securities Industry and Financial Markets Association. His group, along with the International Swaps and Derivatives Association, is suing the government, asserting that unintended consequences of the rule would hinder efforts to raise capital.

Swaps are arrangements in which two investors agree to pay each other changing amounts of money based on shifts in interest rates or other financial measuring sticks.

Energy companies that operate trade desks want to be excluded from regulation.

Supporters of the rule say that when a small number of traders own a large portion of the market they can artificially inflate prices, and that hurts consumers.

Mr. Casey is among those pressuring the commission to do whatever is necessary to implement and enforce position limits. It's critical to American consumers, he said in a letter Monday to the commission's chairman, Gary Gensler. It "would be an important first step in curbing the role that oil speculation has had in driving up prices," he wrote.

The commission's spokesman, R. David Gary, confirmed that Mr. Gensler received the senator's letter but declined to comment on it.

Another commissioner, though, says he is eager to implement the rule. Bart Chilton estimates that large futures trades on Wall Street have pushed up prices by as much as $7.30 per tank for a Honda Civic or $14.56 a tank for a Ford F150. His calculations are based on data in a Goldman Sachs energy report.

"People are paying more for gas than they would without excessive speculation," he said. "For the average family, it makes a difference. They have to make a decision about whether they're buying food and paying for household needs or paying for gas to put in their cars."

Increased regulation of futures trading will help moderate fuel prices, Mr. Chilton said. "We're not going to have dollar gasoline, but we can have a dampening impact," he said.

Supporters of increased regulation say limits are more necessary than ever in an economy where commodities producers are vastly outnumbered by speculative traders, particularly passive ones who hold their market shares for years as part of pension plans and other long-term investments.

"There've been times in the crude oil market where a single trader has controlled more than 30 percent of the market. It's hard to argue that when you hold that much you can't inflate prices," Mr. Chilton said.

Data support his contention that there's more going on than simple supply-and-demand economics.

Demand for petroleum was 5.7 percent lower last month than a year ago, according to the American Petroleum Institute. Meanwhile, the price at the pump is 17 percent higher, according to price tracker

Republicans, meanwhile, took to the Senate floor last week to blame the Obama administration for spending more resources on reducing dependence on foreign oil than on trying to reduce gas prices.

Congress called for position limits when it passed the Wall Street Reform Act, also known as Dodd-Frank.

Mr. Frank -- who wrote the law along with former Congressman Chris Dodd, D-Conn. -- is frustrated by the Commodity Futures Trading Commission's inability to finalize the position limits rule but said he understands commissioners must proceed carefully.

The delay "is nobody's fault," he said in a telephone interview Tuesday. "They're being sued. They have to be careful about it."

Dodd-Frank calls for sweeping regulatory changes, including nearly 100 new rules that already have been finalized. The one limiting positions is the first that the Securities Industry and Financial Markets Association has filed suit over.

"This is not Wall Street trying to resist change at every turn," Mr. Hammerman said. Rather, his association and its members want commissioners to study the effects of position limits and realize they aren't obligated to implement a rule they find inappropriate. Of course, his group is willing to provide untold anecdotes, studies and data that point to inappropriateness.

"We want to be a constructive voice in the regulatory reform process, and we have a lot of relevant information to share because we're going to be impacted tremendously by what the regulators pass," he said. "Unintended consequences will make it harder for companies to raise capital or for investment opportunities to find their way to investors. That's a friction in the system that we don't need."

Push-back from Wall Street isn't the only obstacle to implementation, said Harry Gural, spokesman for Mr. Frank. There's also partisan rancor that didn't end with passage of the controversial Wall Street reform bill.

Republicans are trying to block funding to the Commodity Futures Trading Commission and threatening to repeal Dodd-Frank if they can regain control of the Senate and White House in the November elections. They've said Dodd-Frank's cumbersome regulations burden American businesses and make them less competitive in the global market.

Already House Republicans have passed a bill through committee that would substantially weaken Dodd-Frank reforms.

"It's a real monkey wrench they're trying to push through," Mr. Gural said. The commission is "trying to get these rules written and get them in position in battlefield conditions."

Bureau Chief Tracie Mauriello: or 703-996-9292.
First published on March 4, 2012 at 12:00 am